The Other Side of the Capital Markets

Last week we discussed how Paragon and Hellenic Carriers were fine-tuning their respective strategies, the former through diversification while the latter through fleet renewal. This week’s transactions, a merger, a divestiture and a joint venture, evidence shipping’s evolution from simple asset trader to corporate strategist.

Fulfilling the theory that two is bigger and better than one, Eidsiva Rederi ASA and Dyvi Shipping AS agreed last month to enter into a business combination in which Eidsiva would acquire Dyvi to form Norwegian Car Carriers ASA (“NCC”).

The combined company will be the 4th largest car carrier tonnage provider with a total of 16 ships (13 car carriers and 3 Ro-Ro vessels) and the world’s only listed pure-play car carrier tonnage provider. The car carrier market is currently dominated by a few large operators, including NYK, Wilh. Wilhelmsen, Eukor, MOL, K-Line Hoegh and Grimaldi. These companies provide complete logistics services incorporating terminals, inland transport and IT services to meet their customers needs.   These operators control 80-90% of the deep-sea fleet in capacity terms and depend on the tonnage providers for capacity. Intending to gradually exit all of its pure Ro-Ro investments, the new company will focus on the most standardized and liquid PCTCs, the mid-size 4,000-5,500 CEU and the large size 6,000 to 7,000 CEU vessels, which are the backbone of the fleets of all the major operators.
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NYMAR Live from the NYSE.

The new year’s first serious shipping gathering in NY took place under the aegis of the NY Maritime Association at the New York Stock Exchange.  It was an animated audience that filled the Stock Exchange’s stately hall, though we noted the Exchange’s head of events was relieved that unlike Marine Money Week in 2008 he did not have to contend with 150 more guests than NY City fire codes allowed.

Peter Shaerf, AMA Capital partner and President of NYMAR welcomed the crowd and Bob Gruendel, Partner at DLA Piper brought us to the point of Gazing into the Future through the Crystal Ball and wisely at that point turned to Peter Georgiopoulos, Chairman of Genmar, Genco and Aegean, Duncan Neiderauer, NYSE, CEO and Harvey Pitt currently CEO of Kalorama Partners, but former Head of the US Securities and Exchange Commission.

The following is a short summary paraphrasing the comments, note paraphrasing:
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The Inevitable – Taxes and Restructuring

President Obama’s Proposed International Tax Changes – Will They Truly Achieve Economic Stimulation
Tamara Moravia-Israel of Ernst & Young was forthright in views of the President’s proposed changes in international tax law. It is not good for shipping. And there is a question as to whether it will in fact create jobs, stimulate the economy and increase competitiveness as is suggested. First, the “check the box” regime is proposed to be reformed in that foreign eligible entities with a single owner could be disregarded for federal US tax purposes only if: (1) they are organized in the same country in which the owner is organized or created, or (2) a US person wholly owns them (except for tax avoidance cases). The implications of this are potential conversion of first-tier (for tax avoidance) and second-tier (or lower) foreign disregarded entities (FDEs) to corporations that may have US tax implications. Ms. Moravia-Israel suggests that the current check the box regime allows US multinationals to be on somewhat of a level playing field with its foreign competitors. An additional proposed change by the Obama Administration is the deferral of deductions. That is, there will no longer be allowed a deduction for foreign expenses on the US return unless the foreign source income associated with said foreign expense is recognized for US tax purposes. However the biggest threat comes from the Levin Bill, which Congress is potentially currently considering. In effect, the bill puts forth that a foreign corporation is treated as managed and controlled in the US if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the US. If the foreign corporation is considered to be managed and controlled in the US, it is treated as a domestic corporation for US tax purposes. This goes against the traditional determination of nexus, which has historically been the location of board meetings.

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Not Just a Warm-up

Prior to the start of the festivities, Teekay Corporation held its successful shareholders meeting. The room was filled with over 100 spectators with another 200 viewing through the webcast. What was extremely interesting to hear from the Teekay delegation was the acknowledgement that they did not recognize many of the people in the room. Fresh blood!

The first session began under cloudy but dry skies an unusual event in New York these days. The room was packed with the audience hoping to glean insights from last year’s deal of the year winners as the architects of the transactions discussed their deals and how they fit in today’s marketplace. The discussion was led by Stephen Peepels of DLA Piper.
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Where the Sun Never Sets

Nora Huvane was kind enough to file the following report from Oslo:

The mood in Oslo today largely matched the weather. A bit wet and chilly for June, but there were some sunspots and hope is high that fairer weather will return. The hearty and well-prepared will survive and prosper regardless – so if you’re planning any investments in shipping, be sure to pack your umbrella.

Marine Money’s 11th annual Norway Ship & Offshore Forum, held with partners DnB NOR and Nordea and in conjunction with Nor Shipping, focused largely on the offshore markets and outlooks. Respected analysts reviewed outlooks for the oil market, drilling, FPSO and FSO and offshore support vessel markets. While there were concerns about oversupply and short-term mismatches in E&P budgets and industry capacity, the general consensus is that long-term fundamentals remain what they have been safely out of the reach of traders, speculators and gamblers and in the long-range budget planning and price targets of well established oil companies. The world population and economy will continue to grow over the long-term, and until a suitable alternative for oil is found so will oil demand growth. Gavin Strachan of ODS Petrodata pointed out that the oil price drop came as 2009 E&P budgets were being set, making oil price irrelevant for the offshore market in the short-term, over the longer term supply depletion on the order of 9% pa without further investment will ultimately drive demand for the offshore industry.
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